##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  To
 Commission File Number 333-150888
 T3 MOTION, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of
incorporation or organization)
    
    20-4987549
(I.R.S. Employer Identification No.)2990 Airway Avenue, Suite A 
Costa Mesa, California
(Address of principal executive offices)
    
    92626
(Zip Code)
 (714) 619-3600
 (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ
 o þ




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##### 



T3 MOTION, INC.  INDEX TO FORM 10-Q  June 30, 2009
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) for
the Three and Six Months Ended June 30, 2009 and 2008 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and
2008 (unaudited)
    
    
    5Notes to the Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    30PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    32Item 1A.
    
    Risk Factors
    
    
    32Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3.
    
    Defaults upon Senior Securities
    
    
    33Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    33Item 5.
    
    Other Information
    
    
    34Item 6.
    
    Exhibits
    
    
    34Signatures
    
    
    34EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 T3 MOTION, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    129,011
    
    
    $
    1,682,741Accounts receivable, net of reserves of $27,000 and
$27,000, respectively
    
    
    767,276
    
    
    
    1,447,004Related party receivable
    
    
    28,902
    
    
    
    33,248Inventories
    
    
    1,491,249
    
    
    
    1,814,469Prepaid expenses and other current assets
    
    
    327,531
    
    
    
    612,795Total current assets
    
    
    2,743,969
    
    
    
    5,590,257Property and equipment, net
    
    
    1,016,405
    
    
    
    1,197,170Intangible assets, net
    
    
    625,000
    
    
    
    625,000Deposits
    
    
    495,683
    
    
    
    491,761Total assets
    
    $
    4,881,057
    
    
    $
    7,904,188LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYCurrent liabilities:Accounts payable
    
    $
    2,011,952
    
    
    $
    2,381,487Accrued expenses
    
    
    769,426
    
    
    
    785,494Related party payables
    
    
    230,457
    
    
    
    2,034,734Notes payable
    
    
    199,829
    
    
    
    Derivative liabilities
    
    
    3,431,694
    
    
    
    Related party notes payable, net of debt discounts
    
    
    2,441,064
    
    
    
    986,598Total current liabilities
    
    
    9,084,422
    
    
    
    6,188,313Long-term liabilities:Related party note payable
    
    
    
    
    
    
    1,000,000Total liabilities
    
    
    9,084,422
    
    
    
    7,188,313Commitments and contingenciesStockholders (deficit) equity:Common stock, $0.001 par value; 100,000,000 shares
authorized; 44,563,460 and 43,592,428 shares issued
and outstanding, respectively
    
    
    44,564
    
    
    
    43,593Additional paid-in capital
    
    
    23,481,907
    
    
    
    25,043,452Accumulated deficit
    
    
    (27,728,461
    )
    
    
    (24,375,827
    )Accumulated other comprehensive income (loss)
    
    
    (1,375
    )
    
    
    4,657Total stockholders (deficit) equity
    
    
    (4,203,365
    )
    
    
    715,875Total liabilities and stockholders (deficit) equity
    
    $
    4,881,057
    
    
    $
    7,904,188
 See accompanying notes to condensed consolidated financial statements
 3




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##### Table of Contents



T3 MOTION, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
 OTHER COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Total revenues
    
    $
    1,037,930
    
    
    $
    1,910,694
    
    
    $
    2,242,967
    
    
    $
    3,412,795Cost of revenues
    
    
    1,255,747
    
    
    
    2,487,208
    
    
    
    2,722,014
    
    
    
    4,570,045Gross loss
    
    
    (217,817
    )
    
    
    (576,514
    )
    
    
    (479,047
    )
    
    
    (1,157,250
    )Operating expenses:Sales and marketing
    
    
    450,750
    
    
    
    542,717
    
    
    
    997,154
    
    
    
    987,199Research and development
    
    
    297,413
    
    
    
    323,832
    
    
    
    598,861
    
    
    
    604,019General and administrative
    
    
    1,098,666
    
    
    
    1,311,299
    
    
    
    2,340,186
    
    
    
    2,352,996Total operating expenses
    
    
    1,846,829
    
    
    
    2,177,848
    
    
    
    3,936,201
    
    
    
    3,944,214Loss from operations
    
    
    (2,064,646
    )
    
    
    (2,754,362
    )
    
    
    (4,415,248
    )
    
    
    (5,101,464
    )Other income (expense):Interest income
    
    
    870
    
    
    
    23,731
    
    
    
    2,485
    
    
    
    47,680Other income (expense), net
    
    
    4,063,128
    
    
    
    (1,586
    )
    
    
    4,228,937
    
    
    
    (1,537
    )Interest expense
    
    
    (674,058
    )
    
    
    (90,822
    )
    
    
    (1,186,670
    )
    
    
    (455,940
    )Total other income (expense),
net
    
    
    3,389,940
    
    
    
    (68,677
    )
    
    
    3,044,752
    
    
    
    (409,797
    )Income (loss) before provision for
income tax
    
    
    1,325,294
    
    
    
    (2,823,039
    )
    
    
    (1,370,496
    )
    
    
    (5,511,261
    )Provision for income tax
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    800Net income (loss)
    
    
    1,325,294
    
    
    
    (2,823,039
    )
    
    
    (1,371,296
    )
    
    
    (5,512,061
    )Other comprehensive income (loss):Foreign currency translation
income (loss)
    
    
    13,909
    
    
    
    (659
    )
    
    
    (6,032
    )
    
    
    (794
    )Comprehensive income (loss)
    
    $
    1,339,203
    
    
    $
    (2,823,698
    )
    
    $
    (1,377,328
    )
    
    $
    (5,512,855
    )Net income (loss) per share:Basic
    
    $
    0.03
    
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )Diluted
    
    $
    0.02
    
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )Weighted average number of
common shares outstanding:Basic
    
    
    44,563,460
    
    
    
    43,242,979
    
    
    
    44,332,547
    
    
    
    41,251,554Diluted
    
    
    48,096,464
    
    
    
    43,242,979
    
    
    
    44,332,547
    
    
    
    41,251,554
 See accompanying notes to condensed consolidated financial statements
 4




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##### Table of Contents



T3 MOTION, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Six Months Ended June 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (1,371,296
    )
    
    $
    (5,512,061
    )Adjustments to reconcile net loss to net cash used in operating activities:Bad debt expense
    
    
    
    
    
    
    3,000Warranty expense
    
    
    67,955
    
    
    
    202,945Depreciation and amortization
    
    
    182,343
    
    
    
    285,363Investor relations expense
    
    
    80,000
    
    
    
    Stock compensation expense
    
    
    836,305
    
    
    
    661,635Loss on sale of fixed asset
    
    
    
    
    
    
    1,607Change in fair value of derivative liability
    
    
    (4,228,937
    )
    
    
    Amortization of debt discount
    
    
    930,878
    
    
    
    364,423Change in operating assets and liabilities:Accounts and other receivables, net
    
    
    679,729
    
    
    
    (1,334,744
    )Inventories
    
    
    323,220
    
    
    
    (120,308
    )Prepaid expenses and other current assets
    
    
    285,264
    
    
    
    (485,729
    )Deposits
    
    
    (3,922
    )
    
    
    (3,253
    )Accounts payable and accrued expenses
    
    
    (30,005
    )
    
    
    724,169Net cash used in operating activities
    
    
    (2,248,466
    )
    
    
    (5,212,953
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of data license
    
    
    
    
    
    
    (1,000,000
    )Purchases of property and equipment
    
    
    (1,578
    )
    
    
    (443,178
    )Deposits on fixed assets
    
    
    
    
    
    
    (430,625
    )Loans/advances to related parties
    
    
    
    
    
    
    (72,626
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    2,200Repayment of loans/advances to related parties
    
    
    4,346
    
    
    
    Net cash provided by (used in) investing activities
    
    
    2,768
    
    
    
    (1,944,229
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the sale of common stock and contributions from
stockholder, net
    
    
    
    
    
    
    6,431,663Proceeds from issuance of related party debt
    
    
    698,000
    
    
    
    Payment of loans from related parties
    
    
    
    
    
    
    (1,689,990
    )Net cash provided by financing activities
    
    
    698,000
    
    
    
    4,741,673Effect of exchange rate on cash
    
    
    (6,032
    )
    
    
    (794
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (1,553,730
    )
    
    
    (2,416,303
    )CASH AND CASH EQUIVALENTS  beginning of period
    
    
    1,682,741
    
    
    
    4,932,272CASH AND CASH EQUIVALENTS  end of period
    
    $
    129,011
    
    
    $
    2,515,969
 See accompanying notes to condensed consolidated financial statements
 5




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##### Table of Contents



T3 MOTION, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  Continued
 Six Months Ended June 30,2009
    
    
    2008SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for:Interest
    
    $
    10,941
    
    
    $
    61,406Income taxes
    
    $
    800
    
    
    $
    1,600Supplemental disclosure of non cash activities:Issuance of common stock for related party payables
    
    $
    1,536,206
    
    
    $
    Conversion of related party payable to related party notes payable
    
    $
    498,528
    
    
    $
    Conversion of accounts payable to note payable
    
    $
    199,829
    
    
    $
    Cumulative effect to retained earnings due to adoption of EITF 07-5
    
    $
    1,981,338
    
    
    $
    Cumulative effect to additional paid-in capital due to adoption of EITF 07-5
    
    $
    4,013,085
    
    
    $
    Cumulative effect to debt discount due to adoption of EITF 07-5
    
    $
    859,955
    
    
    $
    Debt discount and derivative liabiltiy recorded upon issuance of warrants
    
    $
    807,523
    
    
    $
    
 See accompanying notes to condensed consolidated financial statements
 6




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##### Table of Contents



T3 MOTION, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 1  DESCRIPTION OF BUSINESS
  Interim Unaudited Condensed Consolidated Financial Statements
  Going Concern
   Use of Estimates
  7




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Concentration of Risk
   Revenue Recognition
 Revenue Recognition.
     Fair Value of Financial Instruments
  Segments
  8




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##### Table of Contents



Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Domestic (U.S.)
    
    $
    918,217
    
    
    $
    1,749,653
    
    
    $
    1,593,246
    
    
    $
    3,097,484International
    
    
    119,713
    
    
    
    161,041
    
    
    
    649,721
    
    
    
    315,311Total
    
    $
    1,037,930
    
    
    $
    1,910,694
    
    
    $
    2,242,967
    
    
    $
    3,412,795
 Recent Accounting Pronouncements
     Effective Date of FASB Statement No. 157
 NOTE 2  INVENTORIES
  June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)Raw materials
    
    $
    1,160,934
    
    
    $
    1,170,278Work-in-process
    
    
    121,118
    
    
    
    540,260Finished goods
    
    
    209,197
    
    
    
    103,931$
    1,491,249
    
    
    $
    1,814,469
 NOTE 3  PREPAID EXPENSES AND OTHER CURRENT ASSETS
  9




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June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)Prepaid inventory
    
    $
    133,504
    
    
    $
    355,720Prepaid expenses and other current assets
    
    
    194,027
    
    
    
    257,075$
    327,531
    
    
    $
    612,795
 NOTE 4  INTANGIBLE ASSETS
    Estimated
    
    
    June 30,
    
    
    December 31,Useful Life
    
    
    2009
    
    
    2008(unaudited)Geolmmersive License Agreement
    
    2 Years
    
    $
    1,000,000
    
    
    $
    1,000,000Less: Accumulated amortization
    
    
    
    
    
    
    (375,000
    )
    
    
    (375,000
    )$
    625,000
    
    
    $
    625,000
 NOTE 5  DERIVATIVE LIABILITIES
 Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entitys Own
Stock Accounting for
Derivative Instruments and Hedging Activities,
 10




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##### Table of Contents



June 30,
    
    January 1,2009
    
    2009Annual dividend yield
    
    
    
    
    
    
    Expected life (years)
    
    
    0.50-5
    
    
    
    1-5Risk-free interest rate
    
    
    0.48%-2.54
    %
    
    
    0.57% - 1.67
    %%Expected volatility
    
    
    88%-130
    %
    
    
    104% - 159
    %
     11




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Level 3
    
    
    Level 3Carrying Value
    
    
    Carrying ValueJune 30, 2009
    
    
    January 1, 2009(unaudited)
    
    
    (unaudited)Embedded
conversion options
    
    $
    534,164
    
    
    $
    1,237,435Warrants
    
    
    2,897,530
    
    
    
    5,615,673$
    3,431,694
    
    
    $
    6,853,108Decrease in fair value
    
    $
    4,228,937
  Balance at December 31, 2008
    
    $
    Cumulative effect of EITF 07-5
    
    
    6,853,108Issuance of warrants
    
    
    807,523Change in fair value
    
    
    (4,228,937
    )Balance at June 30, 2009
    
    $
    3,431,694
 NOTE 6  RELATED PARTY NOTES PAYABLE
  June 30, 2009
    
    
    December 31, 2008(unaudited)Note payable to Immersive Media Corp., 12% interest rate,
net of discount of $50,702 and $0, respectively
    
    $
    949,298
    
    
    $
    1,000,000Note payable to Vision Opportunity Master Fund, Ltd.,
10% interest rate, net of discount of $1,744,751 and
$1,213,402, respectively
    
    
    1,055,249
    
    
    
    986,598Note payable to Ki Nam, 10% interest rate, net of discount
of $153,277
    
    
    436,517
    
    
    
    $
    2,441,064
    
    
    $
    1,986,598
 12




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Immersive Note
     Vision Opportunity Master Fund, Ltd. Bridge Financing
 December 2008  Financing
     13




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##### Table of Contents



Share-Based Payment
 May 2009 Financing
       14




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##### Table of Contents



Ki Nam Note
    NOTE 7  INCOME (LOSS) PER SHARE
   15




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Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Numerator for basic net income (loss)
per common share:Net income (loss)
    
    $
    1,325,294
    
    
    $
    (2,823,039
    )
    
    $
    (1,371,296
    )
    
    $
    (5,512,061
    )Effect of dilutive securities:Convertible debt  interest expense
    
    
    526,534
    
    
    
    
    
    
    
    
    
    
    
    Convertible debt  change in fair value of derivative liabilities
    
    
    (878,953
    )
    
    
    
    
    
    
    
    
    
    
    Numerator for diluted net income (loss) per
common share
    
    $
    972,875
    
    
    $
    (2,823,039
    )
    
    $
    (1,371,296
    )
    
    $
    (5,512,061
    )Denominator for basic income (loss) per common share:Weighted-average
shares
    
    
    44,563,460
    
    
    
    43,242,979
    
    
    
    44,332,547
    
    
    
    41,251,554Effect of dilutive securities:Employee stock options
    
    
    1,884,433
    
    
    
    
    
    
    
    
    
    
    
    Convertible debt
    
    
    1,648,571
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted income (loss) per common share
    
    
    48,096,464
    
    
    
    43,242,979
    
    
    
    44,332,547
    
    
    
    41,251,554Net income (loss)  basic
    
    $
    0.03
    
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )Net income (loss)  diluted
    
    $
    0.02
    
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )
   NOTE 8  STOCK OPTIONS AND WARRANTS
 Common Stock Options
  16




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Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Stock compensation expense 
cost of revenue
    
    $
    33,108
    
    
$
    36,565
    
    
    $
    66,071
    
    
    $
    73,229Stock compensation expense 
sales and marketing
    
    
    91,982
    
    
    
    72,393
    
    
    
    178,438
    
    
    
    141,862Stock compensation expense 
research and development
    
    
    53,003
    
    
    
    24,463
    
    
    
    104,245
    
    
    
    51,004Stock compensation expense 
general and administrative
    
    
    248,469
    
    
    
    207,468
    
    
    
    487,551
    
    
    
    395,540Total stock compensation expense
    
    $
    426,562
    
    
    $
    340,889
    
    
    $
    836,305
    
    
    $
    661,635
  Weighted AverageNumber of
    
    
    Weighted Average
    
    
    Remaining Contractual
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Life (in years)
    
    
    Intrinsic ValueOptions outstanding as of
January 1, 2009
    
    
    6,468,167
    
    
    $
    0.76Options granted
    
    
    160,000
    
    
    
    1.40Options exercised
    
    
    
    
    
    
    Options forfeited
    
    
    (370,084
    )
    
    
    0.75Options cancelled
    
    
    
    
    
    
    Options outstanding as of June
30, 2009
    
    
    6,258,083
    
    
    $
    0.77
    
    
    
    8.61
    
    
    $
    1,884,433Options exercisable as of June
30, 2009
    
    
    3,779,092
    
    
    $
    0.64
    
    
    
    8.45
    
    
    $
    1,365,928Options vested and expected to
vest as of June 30, 2009
    
    
    6,193,688
    
    
    $
    0.77
    
    
    
    8.61
    
    
    $
    1,870,858Options available for grant under
the Plan as of June 30, 2009
    
    
    1,191,917Weighted
average fair value of options granted
    
    $
    1.27
  17




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Options Outstanding
    
    
    Options ExercisableWeighted AverageExercise
    
    Number of
    
    
    Remaining Contractual
    
    
    Weighted Average
    
    
    Number of
    
    
    Weighted AveragePrices
    
    Shares
    
    
    Life (in years)
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price$0.60
    
    
    4,136,083
    
    
    
    8.46
    
    
    $
    0.60
    
    
    
    2,947,633
    
    
    $
    0.60$0.77
    
    
    1,000,000
    
    
    
    8.45
    
    
    $
    0.77
    
    
    
    812,500
    
    
    $
    0.77$1.40
    
    
    1,047,000
    
    
    
    9.35
    
    
    $
    1.40
    
    
    
    18,959
    
    
    $
    1.40$1.70
    
    
    75,000
    
    
    
    9.17
    
    
    $
    1.70
    
    
    
    
    
    
    $
    1.706,258,083
    
    
    
    8.61
    
    
    $
    0.77
    
    
    
    3,779,092
    
    
    $
    0.64
  Warrants
  Weighted AverageNumber of
    
    
    Weighted Average
    
    
    Remaining Contractual
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Life (in years)
    
    
    Intrinsic ValueWarrants outstanding as of
January 1, 2009
    
    
    5,380,408
    
    
    $
    1.48Warrants granted
    
    
    578,725
    
    
    $
    1.59Warrants exercised
    
    
    
    
    
    $
    Warrants forfeited
    
    
    
    
    
    $
    Warrants cancelled
    
    
    
    
    
    $
    Warrants outstanding and
exercisable as of June 30,
2009
    
    
    5,959,133
    
    
    $
    1.49
    
    
    
    3.93
    
    
    $
    
 NOTE 9  COMMITMENTS AND CONTINGENCIES
 Warranties
  18




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##### Table of Contents



2009
    
    2008Beginning balance, January 1,
    
    $
    362,469
    
    
    $
    296,000Charged to cost of revenues
    
    
    67,955
    
    
    $
    202,945Usage
    
    
    (172,887
    )
    
    $
    (71,498
    )Ending balance, June 30,
    
    $
    257,537
    
    
    $
    427,447
 Legal Contingency
 Preproduction Plastics, Inc. v. T3 Motion., Inc. Ki Nam and Jason Kim
  Indemnities and Guarantees
  19




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##### Table of Contents



NOTE 10  NOTES PAYABLE
  NOTE 11  RELATED PARTY TRANSACTIONS
  Accounts
    
    
    Related party
    
    
    Related partyreceivable/advances
    
    
    payables
    
    
    notes payableOpening balance at December 31, 2008
    
    $
    33,248
    
    
    $
    2,034,734
    
    
    $
    1,986,598Borrowings
    
    
    
    
    
    
    
    
    
    
    698,000Payments
    
    
    (4,346
    )
    
    
    
    
    
    
    Issuance of stock
    
    
    
    
    
    
    (1,536,206
    )
    
    
    Debt discount
    
    
    
    
    
    
    
    
    
    
    (807,523
    )Cumulative effect of EITF 07-5 - debt discount
    
    
    
    
    
    
     
    
    
    
    (858,683
    )Amortization of discount on debt
    
    
     
    
    
    
    
    
    
    
    930,878Conversion of related party payable to note
    
    
     
    
    
    
    (498,528
    )
    
    
    498,528Reclass of accrued interest to accrued expense
    
    
     
    
    
    
    6,734
    
    
    
    (6,734
    )Interest expense
    
    
    
    
    
    
    223,723
    
    
    
    Balance at June 30, 2009
    
    $
    28,902
    
    
    $
    230,457
    
    
    $
    2,441,064
 Accounts Receivable/Advances
   Prepaid Inventory
  Related Party Payables
   20




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##### Table of Contents



Interest Expense
   Related Party Notes Payables
  NOTE 12- EQUITY
 th
 NOTE 13- SUBSEQUENT EVENTS
  
 21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This quarterly report on Form 10-Q contains certain statements that may be deemed to be
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included in this report are forward-looking statements. When
used in this report, the words may, will, should, would, anticipate, estimate,
expect, plan, project, continuing, ongoing, could, believe, predict, potential,
intend, and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are subject to risks and uncertainties that could cause actual results
to differ materially from those projected. These risks and uncertainties include, but are not
limited to, changes in sales or industry trends, competition, retention of senior management and
other key personnel, availability of materials or components, ability to make continued product
innovations, casualty or work stoppages at the Companys facilities, adverse results of lawsuits
against the Company and currency exchange rates. Forward-looking statements are based on
assumptions and assessments made by the Companys management in light of their experience and their
perception of historical trends, current conditions, expected future developments and other factors
they believe to be appropriate. Readers of this report are cautioned not to place undue reliance on
these forward-looking statements, as there can be no assurance that these forward-looking
statements will prove to be accurate. Management undertakes no obligation to update any
forward-looking statements. This cautionary statement is applicable to all forward-looking
statements contained in this report. Readers should carefully review the risks described in other
documents we file from time to time with the Securities and Exchange Commission (SEC), including
the recently filed Annual Report on Form 10-K for the year ended December 31, 2008.
 OVERVIEW
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Going Concern
  22




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##### Table of Contents



Concentration of Risk
   Revenue Recognition
 Revenue Recognition.
     Fair Value of Financial Instruments
  23




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##### Table of Contents



Income (Loss) Per Share
   Three
Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Numerator
for basic net income (loss) per common share:Net income (loss)
    
    $
    1,325,294
    
    
    $
    (2,823,039
    )
    
    $
    (1,371,296
    )
    
    $
    (5,512,061
    )Effect of dilutive securities:Convertible debt  interest expense
    
    
    526,534
    
    
    
    
    
    
    
    
    
    
    
    Convertible
debt  change in fair value of derivative liabilities
    
    
    (878,953
    )
    
    
    
    
    
    
    
    
    
    
    Numerator
for diluted net income (loss) per common share

    
    $
    972,875
    
    
    $
    (2,823,039
    )
    
    $
    (1,371,296
    )
    
    $
    (5,512,061
    )Denominator
for basic income (loss) per common share:Weighted-average
shares:
    
    
    44,563,460
    
    
    
    43,242,979
    
    
    
    44,332,547
    
    
    
    41,251,554Effect of
dilutive securities:Employee stock options
    
    
    1,884,433
    
    
    
    
    
    
    
    
    
    
    
    Convertible debt
    
    
    1,648,571
    
    
    
    
    
    
    
    
    
    
    
    Denominator
for diluted income (loss) per common share
    
    
    48,096,464
    
    
    
    43,242,979
    
    
    
    44,332,547
    
    
    
    41,251,554Net income (loss)  basic
    
    $
    0.03
    
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    
    (0.13
    )Net income (loss)  diluted
    
    $
    0.02
    
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    
    (0.13
    )
   24




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##### Table of Contents



Legal Contingency
 Preproduction Plastics, Inc. v. T3 Motion., Inc. Ki Nam and Jason Kim
 Warranty
  Segments
  Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Domestic (U.S.)
    
    $
    918,217
    
    
    $
    1,749,653
    
    
    $
    1,593,246
    
    
    $
    3,097,484International
    
    
    119,713
    
    
    
    161,041
    
    
    
    649,721
    
    
    
    315,311Total
    
    $
    1,037,930
    
    
    $
    1,910,694
    
    
    $
    2,242,967
    
    
    $
    3,412,795
 Derivative Liability
 Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entitys Own
Stock Accounting for
Derivative Instruments and Hedging Activities
 25




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##### Table of Contents



Recent Accounting Pronouncements
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles  a Replacement of FASB Statement No. 162 .
 Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly Fair Value Measurements,
 Interim Disclosures about Fair Value of
Financial Instruments
 Recognition and Presentation of
Other-Than-Temporary Impairments
 Effective Date of FASB Statement No. 157
 26




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##### Table of Contents



RESULTS OF OPERATIONS
 Three and Six Months Ended June 30, 2009 and 2008
  27




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##### Table of Contents



Income Statement
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:
    
    $
    1,037,930
    
    
    $
    1,910,694
    
    
    $
    2,242,967
    
    
    $
    3,412,795Cost of revenues
    
    
    1,255,747
    
    
    
    2,487,208
    
    
    
    2,722,014
    
    
    
    4,570,045Gross loss
    
    
    (217,817
    )
    
    
    (576,514
    )
    
    
    (479,047
    )
    
    
    (1,157,250
    )Operating expenses:Sales and marketing
    
    
    450,750
    
    
    
    542,717
    
    
    
    997,154
    
    
    
    987,199Research and development
    
    
    297,413
    
    
    
    323,832
    
    
    
    598,861
    
    
    
    604,019General and administrative
    
    
    1,098,666
    
    
    
    1,311,299
    
    
    
    2,340,186
    
    
    
    2,352,996Total operating expenses
    
    
    1,846,829
    
    
    
    2,177,848
    
    
    
    3,936,201
    
    
    
    3,944,214Loss from operations
    
    
    (2,064,646
    )
    
    
    (2,754,362
    )
    
    
    (4,415,248
    )
    
    
    (5,101,464
    )Other income (expense):Interest income
    
    
    870
    
    
    
    23,731
    
    
    
    2,485
    
    
    
    47,680Other income (expense)
    
    
    4,063,128
    
    
    
    (1,586
    )
    
    
    4,228,937
    
    
    
    (1,537
    )Interest expense
    
    
    (674,058
    )
    
    
    (90,822
    )
    
    
    (1,186,670
    )
    
    
    (455,940
    )Total other income (expense), net
    
    
    3,389,940
    
    
    
    (68,677
    )
    
    
    3,044,752
    
    
    
    (409,797
    )Net income (loss) before provision for income tax
    
    
    1,325,294
    
    
    
    (2,823,039
    )
    
    
    (1,370,496
    )
    
    
    (5,511,261
    )Provision for income tax
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    800Net income (loss)
    
    
    1,325,294
    
    
    
    (2,823,039
    )
    
    
    (1,371,296
    )
    
    
    (5,512,061
    )Other comprehensive income (loss):Foreign
currency translation income (loss)
    
    
    13,909
    
    
    
    (659
    )
    
    
    (6,032
    )
    
    
    (794
    )Comprehensive income (loss)
    
    $
    1,339,203
    
    
    $
    (2,823,698
    )
    
    $
    (1,377,328
    )
    
    $
    (5,512,855
    )Net income (loss) per share:Basic
    
    $
    0.03
    
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )Diluted
    
    $
    0.02
    
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )Weighted average number of
common shares outstanding:Basic
    
    
    44,563,460
    
    
    
    43,242,979
    
    
    
    44,332,547
    
    
    
    41,251,554Diluted
    
    
    48,096,464
    
    
    
    43,242,979
    
    
    
    44,332,547
    
    
    
    41,251,554
 Revenues.
 28




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##### Table of Contents



Domestic Revenues.
 International Revenues
 Cost of Revenues.
 Gross loss.
 Sales and marketing expense.
 Research and development.
 General and administrative.
 Total other income (expense)
 Net Income (Loss)
 29




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   
 Cash Flows
 For the Six Months Ended June 30, 2009 and 2008
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures.
 30




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##### Table of Contents



31




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##### Table of Contents



Remediation of Material Weaknesses
  Changes in Internal Control over Financial Reporting
  
    
    We have hired additional professional accounting resources to assist with the review of
accounting policies and procedures and financial reporting with knowledge, experience and
training in the application of GAAP.
  
    
    We are in the process of further enhancing, the supervisory procedures that will
include additional levels of analysis and quality control reviews within the accounting and
financial reporting functions.
    
    We are in the process of strengthening our internal policies and enhancing our
processes for ensuring consistent treatment and recording of reserve estimates and that
validation of our conclusions regarding significant accounting policies and their
application to our business transactions are carried out by personnel with an appropriate
level of accounting knowledge, experience and training.
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 Preproduction Plastics, Inc. v. T3 Motion, Inc., Ki Nam and Jason Kim
  
 Item 1A. Risk Factors.
  32




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##### Table of Contents



If we are unable to continue as a going concern, our securities will have little or no value.
    
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 None
 
 Item 3. Defaults Upon Senior Securities.
 None
 
 Item 4. Submission of Matters to a Vote of Security Holders.
   Election of Directors
    
    Votes For
    
    Votes WithheldKi Nam
    
    33,670,171
    
    David Snowden
    
    33,670,171
    
    Steven Healy
    
    33,670,171
    
    Mary Schott
    
    33,670,171
    
    Kelly Anderson
    
    33,670,171
    
    
  33




---



##### Table of Contents



Votes For
    
    Votes Against
    
    Abstentions
    
    Nonvotes33,645,171
    
    0
    
    0
    
    25,000
 
 Item 5. Other Information.
 None
 
 Item 6. Exhibits.
 3.1
    
    Amended and Restated Certificate of
Incorporation, as currently in effect (1)3.2
    
    Bylaws (1)3.3
    
    Amendment to Bylaws, dated January 16, 2009 (2)10.1
    
    Securities Purchase Agreement dated as of May 28, 2009 (3)10.2
    
    Form of 10% Secured Convertible
Debenture (3)10.3
    
    Form of Series E Common Stock Purchase Warrant (3)10.4
    
    Subsidiary Guarantee dated as of May 28, 2009 (3)10.5
    
    Security Agreement dated as of May 28, 2009 (3)10.6
    
    Form of Amendment to Series B Common Stock Purchase Warrant (3)10.7
    
    Form of Amendment to Series C Common Stock Purchase Warrant (3)31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley of 2002 *31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley of 2002 *32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S. C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
 
 *
    
    Filed herewith.(1)
    
    Filed with the Companys Registration Statement on Form S-1, filed with the SEC on May 13,
2008.(2)
    
    Filed with the Companys Current Report on Form 8-K, filed with the SEC on January 20, 2009.(3)
    
    Filed with the Companys Current Report on Form 8-K, filed with the SEC on June 5, 2009. 
   Date: August 14, 2009
    T3 MOTION, INC.(Registrant)By:
    /s/ Ki NamKi NamChairman of the Board and Chief Executive Officer 34




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##### Table of Contents



Date: August 14, 2009
    T3 MOTION, INC.(Registrant)By:
    /s/ Kelly AndersonKelly AndersonExecutive Vice President and Chief Financial Officer 35